A. Nate Casket Maker vs. Arango

Pakyaw or piece-rate workers who are under the control and supervision of their employer are regular employees entitled to security of tenure, holiday pay, and service incentive leave pay, but are not entitled to 13th month pay under Section 3(e) of the Rules and Regulations Implementing PD No. 851, which expressly exempts workers paid on task basis without any reference to "field personnel."

Petitioners Armando and Anely Nate are the owners and proprietors of A. Nate Casket Maker, a casket manufacturing and selling business located at 30 Espirito St., Pangulo, Malabon, Metro Manila. Respondents were employed as carpenters, mascilladors, and painters in the casket-making business from 1998 until their alleged termination in March 2007. They were stay-in workers provided with free board and lodging and were compensated on a pakyaw or piece-rate basis, paid per casket produced. The dispute arose from petitioners' attempt to change the existing pakyaw system to a fixed-term contractual arrangement through a written employment contract that respondents refused to sign.

Petitioners Armando and Anely Nate own and operate A. Nate Casket Maker, a casket manufacturing and selling business in Malabon, Metro Manila. They employed respondents on various dates from 1998 as carpenters, mascilladors, and painters. Respondents were stay-in workers provided with free board and lodging and were compensated on a pakyaw or piece-rate basis, paid per casket produced. Petitioners characterized respondents as pakyaw workers paid per job order, while respondents claimed they worked Monday to Saturday, from 7:00 a.m. to 10:00 p.m., without overtime pay or other monetary benefits.

Petitioners alleged that respondents frequently drank and quarreled with each other over petty matters, causing delays in completing job orders and compelling petitioners to contract out work to other workers. On February 3, 2007, petitioners presented respondents with a proposed Contract of Employment that would change the existing pakyaw system to a contractual basis for a period of five months, renewable on a case-to-case basis. The contract stipulated that respondents would be paid on a per-item or piece basis, would not be eligible for sick leave, vacation leave, 13th month pay, bonuses, or any other benefits given to regular employees, and that petitioners reserved the right to terminate employment if performance fell below expectations or if the conditions of employment no longer existed. Petitioners claimed the proposed contract would be more beneficial to respondents.

Respondents, who had been continuously reporting to work since 1998 without interruption, were reluctant to sign the contract. Feeling disgruntled, they filed a complaint with the NLRC on February 8, 2007, initially for money claims — though, not being legally trained, they also checked the box for "illegal dismissal." When petitioners received the summons on March 15, 2007, they called respondents to their office. Respondents went, thinking it might be for an amicable settlement, but were presented with the same contract. According to respondents, their refusal to sign angered petitioners, who told them to go home and not to report for work anymore. Petitioners denied that the March 15 meeting occurred and denied dismissing respondents. The Court, however, found that petitioners' own Position Paper contradicted their denial: it alleged that a meeting was held on February 8, 2007, to propose the change in work system, and that the proposed contract would provide vacation and sick leave benefits — assertions directly contradicted by the actual terms of the contract, which expressly denied such benefits. The Court also noted the absence of any investigation or opportunity for respondents to explain the alleged drinking and quarreling, and found respondents' positive assertion of dismissal more convincing than petitioners' mere denial.

• Regular Employment Status Admitted but No Dismissal: Petitioners maintained that they had always admitted respondents' regular employment status from the beginning of the case. What they insisted upon, contrary to the CA's findings, was that they never dismissed respondents from employment.
• Coterminous Employment: Petitioners argued that since their business depended on the availability of job orders, the duration of respondents' employment was not permanent but coterminous with the completion of such job orders.
• No Money Claims for Pakyaw Workers: Petitioners argued that since respondents were pakyaw workers or "paid by result," they were not entitled to their money claims.
• Grave Abuse of Discretion and Errors in Fact: Petitioners raised that the CA committed grave abuse of discretion amounting to lack or excess of jurisdiction in declaring that respondents were illegally dismissed, and that there were serious errors in the findings of fact which, if not corrected, would cause grave and irreparable damage.

• Questions of Law Only: Respondents countered that only questions of law may be raised in a petition for review on certiorari under Rule 45, and that the errors being raised by petitioners are questions of fact.

• Grave Abuse of Discretion: Whether the Court of Appeals committed grave abuse of discretion in declaring that respondents were illegally dismissed.
• Termination of Employment: Whether respondents' employment was terminated by petitioners.
• Regular Employment Status: Whether respondents, as pakyaw or piece-rate workers, are regular employees entitled to security of tenure.
• Entitlement to Monetary Benefits: Whether respondents, as pakyaw workers considered regular employees, are entitled to overtime pay, holiday pay, service incentive leave pay, and 13th month pay.

• Grave Abuse of Discretion: No. The CA correctly determined that the NLRC committed grave abuse of discretion in ruling that respondents were not illegally dismissed.
• Termination of Employment: Yes. The circumstances — the contradictory terms of the contract versus petitioners' Position Paper, the absence of any investigation or due process, and respondents' positive assertion of dismissal — established that petitioners terminated respondents' employment.
• Regular Employment Status: Yes. Respondents were regular employees under the control test, as petitioners exercised control over the manner and details of their work, and their tasks were necessary and desirable in petitioners' casket-making business.
• Entitlement to Monetary Benefits: Partially yes. Respondents were entitled to holiday pay and service incentive leave pay as they were not field personnel, but they were not entitled to 13th month pay under Section 3(e) of the IRR of PD No. 851, which expressly exempts workers paid on task basis without reference to "field personnel." Overtime pay was not separately addressed as a distinct ruling beyond the general money claims discussion.

• Grave Abuse of Discretion: A Rule 45 petition in labor cases is limited to reviewing whether the CA correctly determined the presence or absence of grave abuse of discretion in the NLRC decision. The proper question is whether the CA correctly determined whether the NLRC ruling had basis in fact and in law. Although Rule 45 generally limits review to questions of law, the conflicting factual findings of the NLRC and the CA compelled the Court to review the evidence on record. The CA correctly found that the NLRC gravely abused its discretion in ruling that no termination occurred, as the evidence supported respondents' claim of illegal dismissal.

• Termination of Employment: The Court found that petitioners indeed terminated respondents' employment. Petitioners' Position Paper alleged that the proposed contract would provide vacation and sick leave benefits to respondents, but the actual terms of the contract expressly denied such benefits — exposing petitioners' true motive. No investigation was conducted on the alleged drinking and quarreling, and respondents were given no opportunity to explain their side, violating due process. The positive assertion of respondents that they were dismissed was more convincing than petitioners' mere denial. In termination cases, the burden of proving just and valid cause rests on the employer; petitioners failed to discharge this burden. Employers cannot seek refuge under contractual terms that subvert the employee's security of tenure, given the inherent inequality in employer-employee relations.

• Regular Employment Status: Under Article 280 of the Labor Code, employment is deemed regular where the employee performs activities necessary or desirable in the employer's usual business, regardless of written or oral agreements to the contrary. The Court applied the control test, which examines: (a) the manner of selection and engagement; (b) the mode of payment of wages; (c) the presence or absence of the power of dismissal; and (d) the presence or absence of the power to control the employee's work. The control test calls for the existence of the right to control, not necessarily its exercise. Respondents' tasks — carpentry, mascilla, rubbing, and painting — were necessary and desirable in petitioners' casket-making business. Petitioners supervised respondents' work: respondents followed steps in making a casket as instructed, maintained notebooks listing completed work with signatures and dates, and these were checked by petitioners as basis for compensation. Although respondents were paid on a piece-rate basis, the control petitioners wielded over the manner and details of their work made them regular employees. Pakyaw workers are considered regular employees for as long as their employers exercise control over them.

• Entitlement to Monetary Benefits: As regular employees, respondents were entitled to security of tenure under Article XIII, Section 3 of the 1987 Constitution and Article 279 of the Labor Code, and could be dismissed only for just or authorized causes and after due process. Petitioners violated these rights by not serving any written notice of termination. Under Article 279, an unjustly dismissed employee is entitled to reinstatement and full backwages. Separation pay in lieu of reinstatement was warranted because nine years had elapsed since the filing of the complaint in 2007, making reinstatement no longer practical. As to holiday pay and service incentive leave pay, the Court applied David vs. Macasio: pakyaw or task-basis workers are entitled to holiday and SIL pay unless they qualify as "field personnel" under Article 82. Respondents did not qualify as field personnel because they regularly performed duties at petitioners' place of business, their actual hours of work could be determined with reasonable certainty, and petitioners supervised their time and performance. However, as to 13th month pay, the Court found respondents not entitled. Section 3(e) of the Rules and Regulations Implementing PD No. 851 exempts employers of those paid on task basis from 13th month pay coverage — and unlike the IRR of the Labor Code on holiday and SIL pay, this exemption contains no reference to "field personnel," meaning the legislature intended the exemption to apply to all task-basis workers regardless of whether they are field personnel. The amount of backwages could not be fully settled because piece-rate workers' earnings vary by production and days worked, requiring the NLRC to conduct the proper determination.

• Control Test — The existence of an employer-employee relationship is determined by the concurrence of four factors: (a) the manner of selection and engagement; (b) the mode of payment of wages; (c) the presence or absence of the power of dismissal; and (d) the presence or absence of the power to control the employee's conduct or the means and methods by which work is to be accomplished. The "control test" assumes primacy. The test calls for the existence of the right to control, not necessarily the exercise thereof — it is enough that the employer has the right to wield the power. In this case, petitioners controlled the manner and details of respondents' casket-making work, establishing regular employment despite piece-rate compensation.

• Regular Employment of Pakyaw/Piece-Rate Workers — Pakyaw or piece-rate workers are considered regular employees for as long as their employers exercise control over them. Their status and nature of employment is that of regular employees, entitling them to security of tenure and protection against illegal dismissal, notwithstanding the piece-rate mode of compensation.

• Burden of Proof in Termination Cases — The burden of proving just and valid cause for dismissing an employee rests upon the employer, and the employer's failure to discharge this burden results in a finding that the dismissal is unjustified. Petitioners failed to prove any just cause and did not observe procedural due process.

• Separation Pay in Lieu of Reinstatement — Separation pay may be awarded in lieu of reinstatement if reinstatement is no longer practical or in the best interest of the parties, or if the employee decides not to be reinstated. Nine years from the filing of the complaint was deemed a substantial period barring reinstatement. Separation pay is computed at one month for every year of service, with a fraction of at least six months considered as one year.

• Field Personnel Exemption — "Field personnel" refers to non-agricultural employees who regularly perform duties away from the principal place of business and whose actual hours of work in the field cannot be determined with reasonable certainty. Workers who perform duties at the employer's place of business, whose hours can be determined with reasonable certainty, and whose time and performance are supervised, are not field personnel and are therefore entitled to holiday pay and service incentive leave pay even if engaged on pakyaw or task basis.

• 13th Month Pay Exemption for Task-Basis Workers — Under Section 3(e) of the Rules and Regulations Implementing PD No. 851, employers of workers paid on task basis are exempted from 13th month pay coverage. Unlike the IRR of the Labor Code on holiday and SIL pay, this exemption does not require that the task worker also be a "field personnel." The legislature did not intend to qualify the exemption with the field personnel requirement, meaning all task-basis workers are exempted from 13th month pay regardless of whether they are field personnel.

• "The law, in defining their contractual relationship, does so, not necessarily or exclusively upon the terms of their written or oral contract, but also on the basis of the nature of the work of employees who had been called upon to perform. The law affords protection to an employee, and it will not countenance any attempt to subvert its spirit and intent. A stipulation in an agreement can be ignored as and when it is utilized to deprive the employee of his security of tenure." — This passage articulates the principle that contractual stipulations cannot override statutory protections for labor, particularly security of tenure, and that the nature of the work — not merely the parties' agreement — defines the employment relationship.

• "The 'control test' assumes primacy in the overall consideration. Under this test, an employment relation obtains where work is performed or services are rendered under the control and supervision of the party contracting for the service, not only as to the result of the work but also as to the manner and details of the performance desired." — This is the canonical formulation of the control test as applied to determine regular employment status of pakyaw or piece-rate workers.

• "It should be remembered that the control test merely calls for the existence of the right to control, and not necessarily the exercise thereof. It is not essential that the employer actually supervises the performance of duties by the employee. It is enough that the former has a right to wield the power." — This clarifies that the control test requires only the existence of the right to control, not actual supervision, a distinction critical in cases involving piece-rate or pakyaw workers.

• "Note that unlike the IRR of the Labor Code on holiday and SIL pay, Section 3(e) of the Rules and Regulations Implementing PD No. 851 exempts employees 'paid on task basis' without any reference to 'field personnel.' This could only mean that insofar as payment of the 13th month pay is concerned, the law did not intend to qualify the exemption from its coverage with the requirement that the task worker be a 'field personnel' at the same time." — This passage distinguishes the 13th month pay exemption from the holiday and SIL pay exemptions, establishing that task-basis workers are categorically exempt from 13th month pay regardless of field personnel status.

• Career Philippines Shipmanagement, Inc. vs. Serna, 700 Phil. 1 (2012) — Cited to establish the parameters of judicial review under Rule 45 in labor cases: the Court examines whether the CA correctly determined the presence or absence of grave abuse of discretion in the NLRC decision, not whether the NLRC decision on the merits was correct.

• Montoya vs. Transmed Manila Corp./Mr. Ellena, et al., 613 Phil. 696 (2009) — Cited through Career Philippines vs. Serna for the same proposition on Rule 45 review parameters.

• Fuji Television Network, Inc. vs. Espiritu, G.R. Nos. 204944-45, December 3, 2014 — Cited for the principle that a Rule 45 petition is limited to questions of law and for the standard of reviewing CA decisions in Rule 65 labor cases.

• Philippine Rural Reconstruction Movement (PRRM) vs. Pulgar, 637 Phil. 244 (2010) — Cited for the exception allowing factual review when there are conflicting factual findings between the NLRC and the CA.

• Reno Foods, Inc. vs. NLRC, 319 Phil. 500 (1995) — Cited for the doctrine that the burden of proving just and valid cause for dismissal rests on the employer.

• Paguio vs. NLRC, 451 Phil. 243 (2003) — Cited for the principle that employers cannot rely on contractual terms to deprive employees of security of tenure, given the inherent inequality in employer-employee relations.

• Labor Congress of the Philippines vs. NLRC, 352 Phil. 1118 (1998) — Cited for two propositions: (1) pakyaw workers under employer control are regular employees, and (2) the determination of backwages for piece-rate workers, which requires assessing varying degrees of production and days worked, is best left to the NLRC.

• David vs. Macasio, G.R. No. 195466, July 2, 2014 — Controlling precedent for the entitlement of pakyaw or task-basis workers to holiday pay and SIL pay (unless they are field personnel) and for the exemption of task-basis workers from 13th month pay under PD No. 851.

• Velasco vs. NLRC, 525 Phil. 749 (2006) — Cited for the doctrine that separation pay may be awarded in lieu of reinstatement when reinstatement is no longer practical or in the best interest of the parties.

• Verdadero vs. Barney Autolines Group of Companies Transport, Inc., 693 Phil. 646 (2012) — Cited for the principle that reinstatement and backwages are twin remedies that give meaning and substance to the constitutional right to security of tenure.

• Article 280, Labor Code (Regular and Casual Employment) — Defines regular employment as employment where the employee is engaged to perform activities necessary or desirable in the usual business or trade of the employer, regardless of written or oral agreements to the contrary. Applied to classify respondents as regular employees despite their pakyaw compensation, as their casket-making tasks were necessary and desirable in petitioners' business.

• Article 279, Labor Code (Security of Tenure) — Provides that an employer shall not terminate a regular employee except for just or authorized cause, and that an unjustly dismissed employee is entitled to reinstatement and full backwages. Applied to hold that respondents, as regular employees, could not be dismissed without just cause and due process, and were entitled to reinstatement (or separation pay in lieu thereof) and backwages.

• Article XIII, Section 3, 1987 Constitution — Guarantees the right of all workers to security of tenure, humane conditions of work, and a living wage. Applied as the constitutional basis for respondents' right to security of tenure.

• Section 2, Rule XIV, Book V, Omnibus Rules Implementing the Labor Code — Requires employers to furnish a written notice of dismissal stating the particular acts or omissions constituting the grounds for dismissal. Applied to find that petitioners violated due process by not serving any written notice of termination.

• Article 82, Labor Code (Definition of Field Personnel) — Defines "field personnel" as non-agricultural employees who regularly perform duties away from the principal place of business and whose actual hours of work in the field cannot be determined with reasonable certainty. Applied to determine that respondents were not field personnel, as they worked at petitioners' place of business, their hours could be determined, and their time and performance were supervised.

• Article 94, Labor Code (Holiday Pay) — Grants every worker the right to holiday pay, with exemptions including field personnel and those engaged on task or contract basis whose performance is unsupervised. Applied to entitle respondents to holiday pay because they were not field personnel and their performance was supervised.

• Article 95, Labor Code (Service Incentive Leave) — Grants employees who have rendered at least one year of service the right to yearly service incentive leave of five days with pay, with exemptions similar to holiday pay. Applied to entitle respondents to SIL pay because they were not field personnel.

• Presidential Decree No. 851 (13th Month Pay Law) — Governs the payment of 13th month pay to all employees, with exemptions under Section 3 of its implementing rules. Applied through Section 3(e) to exempt respondents from 13th month pay because they were paid on task basis, an exemption that does not require the worker to also be a field personnel.

Velasco, Jr., (Chairperson), Perez, Reyes, and Jardeleza, JJ., concurred.